No-Moat Conagra Enters Margin Recovery Phase in Q2; Shares Palatable

No-moat Conagra Brands posted stellar (November-ended) fiscal 2023 second-quarter results, with its organic net sales advancing 8.6% on a 17% contribution from price/mix, which was partially offset by an 8.4% downdraft in volume. From our vantage point, Conagra’s ability to maintain lower elasticity levels (less erosion to volume from price hikes) relative to its historical norms highlights successful portfolio reshaping efforts undertaken by its management to shift its product mix toward more on-trend higher-growth, and less-commoditized fare. In addition, Conagra’s continued share gaining momentum in its strategic domains strikes us as encouraging, with its snack and frozen categories (64% of U.S. retail sales) gaining 70 basis points in the quarter. Nonetheless, we hold our belief that Conagra’s relative underinvestment (3% of sales spending on marketing and R&D versus 6% for peers) may erode its brand strength and would likely lead to modest market share losses longer term, underpinning our no-moat rating.